The popular Dealbook column of "The New York Times" reports that Palestinian high tech is becoming a magnet for venture capital investment.
“What’s happening in private equity at this stage has never been like this; it’s unprecedented,” Palestine Investment Fund chairman and CEO Mohammad Mustafa told "The New York Times". The fund provided $10 million in seed capital to Abraaj Capital’s fund and $15 million to Rasmala Investment’s fund.
Sadara Ventures is one of the pioneers in Palestinian high-tech investment. The fund was founded by Veritas Venture Partners co-founder Yadin Kaufmann and Saed Nashef, a Palestinian businessman. It has raised $28.7 million in three years from Cisco Systems Inc. (Nasdaq: CSCO), Google Inc. (Nasdaq: GOOG), the European Investment Bank, and the George Soros Fund, and is about to make its first investments.
Nashef estimates that there are more than 300 technology companies in the West Bank and Gaza Strip, with about 3,200 people working on mobile apps and innovative web sites like yamsafer.com. Nashef, 42, the founder of the software consulting firm Equiom Inc. and a former Microsoft software engineer, said that the potential encouraged him to return to the region from the US. Sadara plans to invest exclusively in Palestinian technology start-ups and aims to take stakes in about 15 companies over 10 years.
“There’s a small but significant number of very educated entrepreneurs who need capital and access to international markets,” said Kaufmann.
Sadara Ventures is part of a growing wave of investment flowing into the Palestinian territories. Dubai-based Rasmala Investment Bank Ltd. started a Palestinian fund last May with plans to raise $100 million over the next three years. Siraj Fund Management began its $60 million private equity fund, Siraj Palestine Fund I, last year. Last month, Abraaj Capital raised $36 million for its Palestine Growth Capital Fund.
"The New York Times" says, "Such funds are still in their infancy, but analysts say there is potential."
"At this stage, most of the funds launched are by firms with specific regional interest, backed by people with underlying social motives,” Globesight director Taufiq Rahim told the paper. “Fund and deal sizes are small, and it’s not the major private equity firms setting up shop. But it’s definitely a strong start."
Sadara Ventures has been able to tap the connections of its founders. Kaufmann has worked with international technology companies over his last 25 years as a venture capitalist. He has had a long-standing relationship with Cisco since the company acquired Class Data Systems, a Veritas investment. He and Nashef met Google representatives during their first visit to Ramallah in March 2009. The two followed up with Google’s representatives in London and subsequently at the Aspen Institute’s Middle East Strategy Group meeting in September 2009, and secured Google's investment in late 2010.
“There is a relative lack of local Arabic content online, and more content means more Internet users and greater penetration; focusing on places like Palestine will contribute to growth in this area,” said Debu Purkayastha, a member of Google’s business development team in London, who also sits on Sadara’s advisory board. “Google definitely wants to play a part in developing the tech ecosystem in a place where youth are so empowered by the Internet."
The Palestinian economy is proving resilient amid the revolutions that swept the regions. Last year, the Palestinian stock market was among the best performing in the Middle East.
Nashef told "The New York Times" by phone from his office in East Jerusalem, “Our investors often ask us about political sensitivities when fund-raising, especially during the Arab Spring, but the truth is that Palestine is not new to instability. Palestinian people have been living under occupation for a long time and despite hardships, people still need to put food on the table. This has resulted in a lot of savvy entrepreneurs with resilient, adaptive business models."
Even though venture capitalists often expect to wait years for a payoff, Kaufmann said potential investors were initially skeptical that Palestinian start-ups would ever yield good returns, given the changing political climate in the Middle East. He reminded them that Israeli technology firms faced similar concerns in the 1980s, when many foreign investors refrained from putting money into Israeli technology companies for fear of possible war and because the sector was still unproven.
Published by Globes [online], Israel business news - www.globes-online.com - on April 17, 2012
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